My most recent energy bill left me feeling smug. Duke Energy told me I used less energy last month than the majority of my neighbors. As a naturally competitive person, I felt the satisfaction of winning something and the desire to keep winning — I found myself wondering how I could use even less energy the next month.
Duke Energy is one of many companies incorporating research on how people behave, known as behavioral economics. In this case, behavioral science research found that showing individuals how much energy people with comparable homes use can induce them to reduce their own energy consumption. In the behavioral economics field, this is known as a nudge.
What is a nudge?
You may recognize the term from the popular book Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein.
Thaler and Sunstein argue that the central assumption of traditional economics, that humans are rational decision makers, is false. Instead, we rely on biases and heuristics to make decisions. The behavioral economics field grew out of the idea that if we study these biases and heuristics, we can learn how to make better decisions.
One example of bias in decision making is recency bias, which describes the tendency of people to rely heavily on recent experience when making decisions. For example, managers giving performance reviews often overweight an employee’s recent performance instead of looking at performance over the whole period of time equally.
Another example is confirmation bias, or the tendency for people to seek out information that confirms their preexisting beliefs and discount information that contradicts those beliefs. Confirmation bias is one reason why people cling to their beliefs even after substantial evidence that they are wrong.
Application of nudges to public policy
In Nudge, Thaler and Sunstein argue that governments should use this research to “nudge” us to make better choices. Many of their examples have to do with choice architecture, or the way that choices are structured when making a decision such as selecting a credit card payment plan, a retirement savings account, or a healthcare plan.
For example, they argue that governments should require people to actively choose whether to be an organ donor when they get their license. Research has shown people are more likely to become organ donors if they are required to make an active choice (i.e. select yes or no) rather than opt in to something (i.e. check here if you would like to be an organ donor with the default being no). Requiring people to make an active choice overcomes humans’ natural tendency to maintain the status quo (not surprisingly called status quo bias) instead of make choices to change it.
Some European countries go one step further by having an organ donor opt out system where people are presumed to be organ donors unless they actively choose to opt out. Opt out systems lead to higher organ donor rates because people are more likely to maintain the status quo, which in this case is become an organ donor, than take steps to change it.
Behavioral economics has shaped policies from the federal to the local level. Several cities have introduced taxes on plastic bags in an effort to reduce their usage. These policies are based on the concept of loss aversion, or the idea that people feel greater pain at losing something than the pleasure they feel from gaining it. Instead of rewarding people who bring reusable bags to the grocery store, behavioral economists suggest taxing people who use plastic bags is more likely to change behavior.
Nudges as a powerful tool in education
Behavioral economics firms such as ideas42 or Duke-based Center for Advanced Hindsight often focus on health and wealth, but increasingly researchers are testing behavioral economics in education. An article this week from The Hechinger Report looked at how nudges can have a powerful effect on education, including early childcare.
Researchers at Teachers College, Columbia University, tested the effectiveness of texting parents information about their children’s absences, missed assignments, and grades. As any teacher knows, communicating with parents can be one of the most difficult parts of the job. On one extreme, some teachers have to deal with “helicopter” parents while on the other hand, many teachers are unable to communicate with parents on a regular basis, especially lower income parents.
In this study, researchers partnered with a learning management system company to develop a technology that pulls information from schools’ student information systems and teacher gradebooks to text parents about class absences, missed assignments, and low grades. They tested the technology in 22 middle and high schools and found the text alerts reduced the number of courses students failed, improved students GPA, and increased in-class exam scores. These effects lasted into the second year of the intervention for high school students, and the cost of sending all the text messages, 32,000 in total, was only $63.
The article also mentioned a study out of Stanford’s Center for Education Policy Analysis that used similar texting technology to target preschool parents. The program, READY4K!, texted parents three times a week about an academic skill or set of skills, including a “tip” text that gave parents ideas for activities to advance that particular skill. At the end of the eight-month intervention, the parents reported engaging in more home literacy activities and their children scored higher on an early literacy assessment than the control group.
Policymakers and educators alike should be excited by these results. Compared with other education interventions, automated texting technology is a cost-effective way to increase engagement with parents and student achievement. Additionally, in both studies, the children who benefitted most were those who were below average — they either had lower grade point averages in the first study or lower baseline skills in the preschool study.
While some people worry that nudges are too paternalistic or that governments could use them in a harmful way, studies like these will likely increase the use of nudging, especially in education where other policy interventions tend to be seen as cost prohibitive.Weekly Insight